NFP; Early fall?

Hi everybody!

After a few weeks of hot weather and lazy days but not so hot markets Im back to make a few comments.
During July my commentary will be very much intermittent, especially the second half of it.
For the first half the probability of updates appearing will be higher.
Regular daily updates will resume as of Monday 17 Aug.
A warning to sensitive bulls out there; This will be a bearish daily update.

Ok, here we go;


* NFP numbers; Early fall?

Please note that I normally do not read that much into NFP numbers as they are notoriously volatile and of low extrapolation value. However, this time I do sit up and notice.
True, I did call June the last bull(!) month of the summer, however, as Ive mentioned in my last update, given the extent of liquidity being pumped into the markets due to falling vols and higher backend yields, forcing realmoney to chase the market, I didnt expect the beartrend to kick in again until August. Ive been looking for the German elections to be the starting point for a renewed focus on the status of German and European banks.
Now it seems this timeschedule might move forward.


* What´s the problem then?

Well, theres a number of problems, involving China (what "Green shoots"? Its brownshoots. The 8% growth is simply not happening there, its way lower.), The US (yesterday being a case in point. Recovery might be some way off, still.) and Europe (doing "nothing", apart from waiting for China and the US to pull them out of the ditch.)

The main focus of the latest NFP numbers to me was the 7.9% quarterly decline of hours worked.
This could of course be due to improved efficiency. But weaker economic activity is likely a heavy variable included. This is not good. Quite bearish and not boding well from here.

The increased liquidity being pumped into the market (bullish), might dampen the initial effect, but as the lower economic activity is likely to weigh on long term interest rates and VIX Vols move higher, these realmoney flows into the assetmarkets will likely subside. Once again, realmoney seems to have turned out to be a counterindicator. Time to get a grip, perhaps.These people manage your pensions!


* China, Russia, Oil and inflation expectations
Pull out a graph for the last few years on Cny/Usd vs Oil/Usd, the correlation between a strengthening Cny and a higher Oil price is quite high. Once the Cny stops strengthening the Oil price does as well. Exception being the latest bout of Oil strengthening this spring.

As the Cny strenghtened, Chinese borrowed up Usd in a grand fashion. Hey, lower rates AND a stronger local currency, what more could one ask for? However, most of these borrowed Usd seems to have gone straight into speculative plays in assetmarkets, pushing these higher.

Effectively frontrunning the Chinese economy and increasing its manufacturing costs in the process. This puts a big questionmark over the Chinese stimulus packages as so far, the only "thing" going up is Chinese stockmarkets. Shipping out of Chinese ports, etc are all down.
To me, the Chinese 8% Gdp growth is nothing more than a myth, if that. It just aint happeni´n.
This in turn does not bode well for Europe, as if Europe was not in trouble enough already,,,,,

Anyway, back to the correlation;
The latest price move higher in Oil while the CNY have been doing zilch is explained by the inflation expectations currently in the market. However, in my view these are way premature and are likely to fall down soonish as inflation reports globally come in below expectations as already witnessed in Japan and South Korea. Oil looks set for a correction lower.

The RUB seems to be in for a rough period together with the rest of the CEE, the Euro, Scandies and the Baltics. The Russian stock index is trading extremely well correlated with the Oil price, but as a turboversion of it. The RUB is following in its trail. with the Russian banking system once again in dire straits and the underlying economy weakening, I am looking for further RUB trouble soonish.


*New positions and position changes
- Long Eur/Sek Calls and spot
- Long Eur/Usd puts
- Long Gbp/Usd puts
- Long Usd/Rub
- Long Usd/Mxn
- Long Usd/Try
- Long Usd/Zar
- Long Eur/Huf
- Short Nzd/Usd
- Increased long SAS airline stock
- Increased long SKF ETF (Ultrashort US financials)
- Added to long IVN Goldmines via riskreversal


Ive got plenty more to write on the current developments but short on time. Hopefully Ill be able to write more in the next few days.
Bottomline; Im looking for assetmarkets to become increasingly bumpy as we head into the secondhalf of summer. Stay alert.


As usual, good luck

The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

Vacation time

* Been on vacation last week and ditto next week


Latest market setbacks more of a Usd story rather than the "real" bearmarket return.
Come August might be a different story. Stay tuned.

As usual, good luck






The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

Current marketconditions (ex Latvia); follow the flow.

* Discounting the Latvia IMF loan without strings

Have to believe that Latvia will receive their IMF loan with no strings attached. Utterly irresponsible if you ask me. Further lowering the credibility of the EU especially, but also the IMF, for not standing their ground and insisting on doing the right thing - theyve been there, done that.

The IMF has had plenty of experience from scenarios like this. They should know better. They know how it will end - in tears. They bear a responsibility to stop this tragedy unfold any further. I doubt they are strong enough to do it.

In discounting the approval, I will trade accordingly. We already saw an improvement in general market sentiment yesterday. Hence, the realmoney flowtheme is still in play. Ill go with the flow.
Even better if I dont believe the story.

Disclosure; I am long Eur/Lvl FX Forwards.


* Selling the JPY as the US yieldcurve goes flatter

Japanese financial institutions and Lifers are likely to divest further into overseas bondmarkets in their hunt for yields as the US yield curve has gone flatter.We could be seeing strong datapoints going forward, creating a market consensus that "the worst is over".

This financial market rebound and inventory adjustment has to a large extent been driven by public deficit spending. Real money cash liquidity seems to be waiting on the sidelines. They might soon have to start buying assets,,,,,,,, Improved IMF funding will also add to the positive sentiment.


* With the current bullish sentiment remaining and a consensus conviction growing that "the worst is behind us", no wonder inflation is "in" again. The real issue to me is still deflation though.

Todays release of Chinas PPI (-10.4% Y/Y) and CPI (-1.4%) Y/Y seems to support that view for now.


*New positions and position changes
- Added to my long SAS stock
- Added to my long Usd/Mxn position
- Long Usd/Zar


As always, good luck






The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

Latvia; Starving themselves to recovery - wheres the upside?

* Ever tried starving yourselves to better health? I wouldn´t recommend it.

Still, that is what the Latvian government in essence wants their population to do. While I can appreciate the Latvian government standing their ground, as an expression of determination, I dont really see the logical analysis behind as to why.

There used to be an "exitplan"; joining the Euro in a couple of years. Well, that is all fine, but then what? Live happily ever after on EU subsidies? Counting on global happy days? Counting on improved competitiveness alá extreme?

Clearly Latvia is not ready for the Euro, and by now, the likelyhood of them meeting the Maastricht criteria is extremely unlikely (but not impossible). The exitplan is very unlikely/gone.

In practise, Latvia is already in default. IMF and the EU is the heart-lung machine currently preventing it. Latvia is applying the right strategy at the wrong time. This should have been done during the good days. Not now.



* How long will the current government last?

The Latvian government has declared an agreement with their coalitionpartners and opposition that they will cut the statebudget by 500 mio Lvl per year for the next three years.

This will then have to pass the parliament, the Saema and sold to the population. The snag is that a big chunk of the cuts will hit social spending. I doubt this will be well received by a population already under pressure. With deflation running at full speed, it should not be long before the soon to be extinct private sector layoffs leads to social unrest and the fall of the current government.

Then the game will finally be up. Unfortunately, the Latvian population will then be more debt burdened (due to the IMF loans) and with potentially nothing left of the loan. Spend on defending the present FX regime and then forced to devalue. Now, thats silly. Why not take an even bigger IMF loan, float the currency and use the means to soften the blow?

That scenario would at least provide the Latvian economy with an impetus to become dynamic again, attracting investments, providing new jobs, lower the unemployment rate, generate higher GDP, etc in the process.


* Downward spiral
Latvia is currently continuing in their downward spiral of lower growth, lower taxrevenues, higher unemployment, higher social costs, etc ,etc. The responsibility now lies heavily with the current primeminister and his government.


* The IMF and the EU

My impression is that the IMF wants to see a devaluation but the EU does not. The EU seems to have a bigger say than the IMF in this case. No devaluation. I do wonder, apart from an extreme unwillingness to deleverage, whats the plan and analysis at the EU camp?

Whats the EU exitplan?
Scrapping the Maastricht criteria? Fingers crossed for a swift turn upwards in the economic cycle? What about the fact that the GDP drop could accelerate downwards swiftly in Latvias downward spiral? When does the budgetsaving demands stop? What about unemployment? Does the EU have any plan at all with this apart from avoiding contagion? Is the EU ready to sacrifice the Latvian people over it? I guess the answer is yes.
Shame on the EU then.



* The current Latvian FX regime is over.

Even if there is no IMF or EU demand for change of the currency regime in conjunction with the IMF loan, the current Latvian FX regime will most likely be over before the end of the year. At least if they want to remain a democracy. That is the bottomline.




* The IMF working on a plan B?

The market has been a little bit hot headed recently, expecting imminent devaluation. This does not seem to happen. Still, I believe the IMF especially, might be working on an alternative plan to come to grips with the current situation as they realise the current situation is nonsustainable. Unless the IMF and the EU provides Latvia with a very lax GDP budget deficit target, they should realise Latvia will miss it once again.

Disclosure; I am long Eur/Lvl FX Forwards.


* New positions and position changes
- Took profit on my long Eur/Sek
- Sold half my long SAS stock at flat as it went lower.
- Bought Eur put/Usd Call
- Bought Gbp put/Usd Call
- Bought Usd/Zar



As usual, good luck.





The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

High event frequency today and tommorrow

* Bank of England, ECB, NFP
Heavy agenda, cant say Im that excited though. Feels like the macro fundamentals are coming into play again, although still wary re the realmoney inflow variable.

On the back of Bernankes speech yesterday, it seems CB;S might become more cautious re their debtload again. This risk stopping the reflation trade in its tracks, dragging commodities, commodity currencies and any other currencies benefitting from higher equity markets down.
Read; AUD, SEK and GBP.


* Latvia
Although I am long Eur/Lvl Fx forwards I dont necessarily view the devaluation as a done deal - yet. The mode in the Latvian government seems to be one of stubbornness. I doubt they will change anything re their FX regime til the IMF tells them to. I believe IMF would rather avoid having to tell them,,

Anyway, this could drag on for a little while. Hopefully, for the people of Latvia´s sake, they will devalue as soon as possible. This would save them prolonged and unnecessary suffering. It will be very hard as it is anyway. Seems there will be a pressconference with members of the Latvian government and the IMF today. It should carry a "positive" message re Latvian financing from the IMF.

Hopefully , IMF will not provide the big transfer without demanding an adjustment of the Latvian exchange rate regime. No strings = mindless at this stage. At least in my view.


* The SEK
It is important to remember that in terms of productivity and competitiveness, the SEK has gained zilch since this crisis started. As most of my readers know, the recent strength is mostly due to the rebound of equity markets. Alas, not sustainable. Especially not as were heading deeper into the seasonally weak June /July.

Another interesting point is the correlation between the Baltic countries GDP growth and the value of the SEK over the last year, it is very high.
With the Baltic GDP growth sinking like a stone, the SEK is lagging. It still has ways to go down as well.


* New positions and position changes
- Took profit on my long Swedbank puts




As always, good luck






The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

Latvia - a trigger for a revisit of CEE turbulence and European bank system stress? SEK; trouble ahead.

* Latvia devaluation risk triggering another round of CEE selloffs.

IMF now have to make the decision; letting Latvia devalue or not? The Latvian politicians will of course make the formal decision, but, in practise, it is the IMF who now decides. As Ive mentioned before, I believe the Latvians will get their IMF loan.

However, there will/should be strings attached. One string that would suit the Latvian politicians policies would be to tie the LVL to the ERMII system. IE, letting the LVL move +-15% around the existing midrate. A way to save face for the Latvian politicians. The road to the Euro,,,,,right. It will be in vain though. Most likely scenario post such an announcement would be for the LVL to immediately weaken to the 15% limit. Stay there for a brief time and then the Lvl would be forced to float freely. Sending the Lvl weakening to a total of 40%-50%. If not more,(read, The new leading indicator for Latvia; Latvian prostitution prices ).


* The SEK and the Baltics

In my view, the Swedish Riksbanks stresstest of the Swedish banks, although harsher than the analyst consensus, was too soft. Not that surprising. Not that surprising that stockmarket analysts are off either. (They are bottom up analysts, not top down. Bottom up analysts historically have underestimated future losses, writedowns and overestimated profits during downturns.) The Swedish Riksbank are cautious not to stir things up too much at this very sensitive time for the Baltics.

Going forward, in my view, the Swedish Riksbanks estimates of creditlosses are likely to be revised upwards going forward. Anyway, the SEK is likely to come under pressure again, pushing Eur/Sek towards the 11.15/11.25 area for starters. The summer months of June and July are seasonally weak SEK months during normal circumstances. Should Latvia start the Baltic devaluation chain reaction the implications for the SEK should be heavy. A test of the alltime highs for Eur/Sek at 11.7860 should not be ruled out.

This scenario should take place within the next one to two months. If not, some other solution has been found involving the IMF, injecting an even bigger package into Latvia.



* The Baltics and the CEE area
Although the CEE area in general has floating currencies generating a significant advantage compared to the Baltics in the current environment, the CEE area has similar problems when it comes to foreign hard currency debt. Main lenders; Western European banks. Full circle.
One risk would be for a refocus on the lack of deleveraging in the European area, European bad debts and the vulnerability of European banks. This in turn risks turning more attention towards the Euro area and sovereign debt.

On the other hand, chunky realmoney flows are expected to start flowing into assetmarkets as implied volatilites have shrunk significantly. Now, realmoney flows are often a counterindicator, but, those flows are also very chunky. So, short term could see continued support for financial markets. Although I doubt the CEE area will benefit very much from the realmoney flows.
Add to this the assymetric risks present and it makes sense to start planning for a "hot" end of summer.

Disclosure; I am long Eur/Lvl Fx Forwards

* New positions and position changes
- Taken profit on long Eur Call /Usd put option
- Taken profit on long Gbp Call/ Usd put option
- Long Eur/Sek


As usual, good luck







latvia

The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.

Inflating vs deleveraging, what about the next step?

* Inflating to avoid an immediate crash -inflating the crash potential in the process.

To some extent, the Latvian scenario is a case in point. An extreme case but yet so visibly similar to other governments behaviour during this crisis. Youve got liquidity problems? Increase your leverage! The leverage days should be behind us. However, the behaviour so far has during the crisis has not indicated that this is necessarily the way authorities view it. Back to good o´l leverage days alá 2006?

The world was not "normal" during 2002-2007. Still it seems markets perceive that time period as "normal circumstances" which we will soon revert to. I dont think so. Although deleveraging has not been the main theme so far this crisis, it will become a crucial factor.

Either deleverage now or live with no or very low growth for a number of years. Its basic riskmanagement. Although certain liquidity providing measures have been necessary so far, in order to avoid a complete breakdown, many measures have been misguided and overdone. This has instead increased leverage and the overall risk and cost in the process. Stakes and risks are increasing, although the general media and so called expert noice is sounding all clear. Well see.

To extend on the by now infamous analogy by the former Citigroup CEO Charles "still dancing" Prince; Ill stay at the party, but Ill be dancing close to the exit and I am making sure my helmet is within reaching distance.



* The Swedish Riksbanks "stresstests" - everything´s fine - still.

So, basically, even if theres a devaluation in Latvia, even if there are devaluations in all three Baltic countries. Even if those devaluations reach 40%-65%, even if credit losses in the Baltics reach 30%-40%. Even if the CEE and the Euro area starts crumbling due to no pull traction from China and the US 2H this year. Even if Swedish taxpayers and domestic demand gets hit hard as a consequence, with higher unemployment, lower realestateprices, etc etc due to the Baltic crisis. Even if Swedish venture capitalists go belly up, the Swedish banks will make it?


Actually, the Swedish Riksbank did not use those assumptions when they made their report.
They did not even mention any devaluation risk. They estimated creditlosses in the Baltics to 10%. In Ukraine, 30%. In Sweden,1.3%. Denmark and Norway, 1,95%. UK, 3.9%.
Poland,5% and Russia,10%.
All for the period of the next two years, 2009-2010. During the same timeperiod, Swedish bank earnings are expected to be 85% of consensus expectations.

Under the Swedish Riksbanks expectations the Swedish banks would make it. Please note that their expectations are rather conservative. Not really what I would call a stresstest anyway. Riksbank still living in the 2006 days, eh? The low volatility quant days. Well, well see how this plays out.

Swedish taxpayers should already be aware that the government backed bank programme is already having unintended consequences, as the Swedish banks "arbs" the Swedish taxpayers by borrowing at a discount from the Swedish taxpayers and lending at a premium in the Baltics. The taxpayers take on the wrong side of a digital blow out risk, for an extremely low premium/return. Hardly what I would call protecting the taxpayers capital. Especially as earnings go straight to the banks. An example of debt inflating instead of deleveraging.

Disclosure; I am long Eur/Lvl forwards


*New positions and position changes
- Long puts on Swedbank
- Long puts on SEB



As usual, good luck




The comments and posts published in this blog ARE NOT trading recommendations. They can NEVER be considered as trading calls or advices. If you decide to use the information offered here for your real trading it is at your own risk.

Trading on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
Errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice."www.todaysmacrotrading.blogspot.com" will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

© 2008 "www.todaysmacrotrading.blogspot.com:The traders blog" All Rights Reserved.